UK retail sales provide hope for Q2 GDP growth

UK retail figures showing sales rose 0.6 per cent in June point to improved GDP growth in the second quarter following a disappointing Q1, but some argue one-off impacts played into today’s ONS data.

The monthly expansion points to a 1.5 per cent quarterly rise.

Capital Economics UK economist Paul Hollingsworth says today’s figures confirm talk of a marked consumer slowdown has been overdone.

With retail sales accounting for around a third of overall spending, Hollingsworth says quarterly retail sales will boost GDP growth for Q2 by almost 0.1 percentage points.

In Q1 UK GDP growth was a meagre 0.2 per cent – the worst performance in the EU and behind Greece and Italy.

However, Share Centre economics commentator Michael Baxter says while the strong performance in June is a relief investors should not read too much into the increase.

“This may seem like good news, but one-offs explained much of the increase and frankly the jump was badly needed,” Baxter says.

Clothing sales spurred by the June heatwave delivered better-than-expected clothing sales, compensating for a decline in sales of food and fuel.

Baxter adds: “The biggest danger lies with falling real wages. Although UK inflation fell back a little in June, real wages are still seeing sharp falls, and there is precious little evidence that employers plan to increase wages at a faster rate.”

However, Hollingsworth argues the rise in sales was fairly broad based and supports his view that the economy will maintain decent momentum in the coming quarters.

Hargreaves Lansdown senior economist Ben Brettell agrees the news adds to a renewed sense of optimism on the UK’s economic prospects.

“Spending seems to be holding up despite falling real wages, and if the sterling-driven spike in inflation is finally receding, we could see a stronger contribution from the UK consumer in the second half of the year,” Brettell says. 

“Sterling reacted positively to the figures, having fallen earlier in the day, gaining around a third of a cent against the dollar.”